Today, a number of hedge funds still follow the original hedge fund strategy, and those funds' managers concentrate their investments in long and short positions on stocks listed on major markets.
Newer variations of hedge funds, which began to emerge in the 1990s, use different, often more complex, strategies in order to achieve positive, sometimes outsized, returns. Those approaches sometimes mean taking greater risk and putting less emphasis on defensive, or offsetting, positions that could soften the impact of a big loss. Some funds specialize in a particular strategy while multi-strategy funds employ a range of techniques to capitalize on what they identify as potentially profitable opportunities.
What many of these newer and often more aggressive funds have in common are their investments in derivatives and other products in addition to traditional securities, and their extensive use of leverage,
or putting up only a small amount of the money required to make the investment and borrowing the rest.
Alfred Winslow Jones Alfred Winslow Jones, a sociologist, author, and financial journalist, started the first hedge fund, which he called a "hedged fund," in 1949. He was convinced that there was stable, reliable money to be made using a new investment style, which took both long and short positions in stock to protect against market swings by betting on the spread,
or difference between the loss on one side of the investment and the gain on the other.
Although he knew that his positive returns might not be as spectacular as those of investors taking only long positions, he believed that protecting against the spectacular losses that long investors often experienced with a combination of short and long positions would ensure a better return over the long run.
